Income Tax Officer-3(2), Lucknow v. M/s Dev Bhoomi Promoters & Developers Pvt. Ltd., Lucknow

ITA 116/LKW/2017 | 2012-2013
Pronouncement Date: 31-08-2021 | Result: Dismissed

Appeal Details

RSA Number 11623714 RSA 2017
Assessee PAN AACCD1859R
Bench Lucknow
Appeal Number ITA 116/LKW/2017
Duration Of Justice 4 year(s) 6 month(s) 23 day(s)
Appellant Income Tax Officer-3(2), Lucknow
Respondent M/s Dev Bhoomi Promoters & Developers Pvt. Ltd., Lucknow
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-08-2021
Date Of Final Hearing 19-08-2021
Next Hearing Date 19-08-2021
Last Hearing Date 21-02-2018
First Hearing Date 12-07-2021
Assessment Year 2012-2013
Appeal Filed On 07-02-2017
Judgment Text
I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B LUCKNOW (THROUGH VIRTUAL HEARING) BEFORE SHRI A. D. JAIN VICE PRESIDENT AND SHRI T. S. KAPOOR ACCOUNTANT MEMBER ITA NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 INCOME TAX OFFICER - 2(2) RANGE-2 LUCKNOW. VS. M/S DEV BHOOMI PROMOTERS & DEVELOPERS PVT. LTD. 2/299 VISHAL KHAND GOMTI NAGAR LUCKNOW. PAN:AACCD1859R (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A)-I LUCKNOW DATED 31/05/2016 PERTAINING TO AS SESSMENT YEAR 2012- 2013. IN THIS APPEAL THE REVENUE HAS RAISED THE FO LLOWING GROUNDS OF APPEAL: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.2 00 00 000/- WHICH WAS MADE IN THE ABSENCE OF PROPER EXPLANATION OFFERED BY THE AS SESSEE APPELLANT BY S HRI HARISH GIDWANI D.R. RESPONDENT BY SHRI K. R. RASTOGI C. A. DATE OF HEARING 19 / 08 /20 21 DATE OF PRONOUNCEMENT 31/08/2021 I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 2 REGARDING FORFEITED AMOUNT OF RS.2 00 00 000/- WHI CH WAS SHOWN AS UNSECURED LOAN IN THE BOOKS OF INVESTORS. THE ASSESSEE USED COLOURABLE DEVICE TO INTRODUCE MONEY IN ITS BUSINESS UNDER THE GARB OF SHARE APPLICATION MONEY BY MAKING PRIVATE PLACEMENT AND LATER ON FORFEITING TH E MONEY FOR NON-PAYMENT OF CALL MONEY. 2. LEARNED D. R. AT THE OUTSET INVITED OUR ATTENT ION TO A PETITION FOR CONDONATION OF DELAY IN FILING THE APPEAL AND ALSO INVITED OUR ATTENTION TO THE AFFIDAVIT FILED BY THE ASSESSING OFFICER DULY NOTAR IZED AND SIGNED NARRATING THEREIN THE REASON FOR DELAY IN FILING OF THE APPEA L. IT WAS SUBMITTED THAT DUE TO THE RETIREMENT OF THE THEN ASSESSING OFFICER THE APPEAL COULD NOT BE FILED DUE TO INADVERTENCE MISTAKE AND DURING THE CO URSE OF HANDING OVER THE CHARGE THE ASSESSING OFFICER WAS NOT COMMUNICATED ABOUT THE PENDENCY OF FILING OF ANY APPEAL AND IT WAS ONLY IN THE MONTH O F JANUARY 2017 DURING THE COMPILING OF DOSSIER REPORT THE DEPONENT CAME TO KNOW THAT THE APPEAL AS AUTHORIZED BY THE PR. CIT LUCKNOW COULD NOT BE FILED WITHIN THE PRESCRIBED TIME. THEREFORE THE DELAY OF 158 DAYS HAS OCCURRED WHICH MAY BE CONDONED. LEARNED A. R. HAD NO OBJECTION TO THE CONDONATION OF DELAY IN FILING THE APPEAL AND FINDING THE REASON FOR DELAY IN FILING THE APPEAL AS PLAUSIBLE THE DELAY WAS CONDONED AND LEARNED D. R. WAS ASKED TO PROCEED WITH HIS ARGUMENTS. 3. LEARNED D. R. SUBMITTED THAT IN THIS CASE THE AS SESSEE HAD ISSUED SHARE CAPITAL TO FOUR COMPANIES AT A PREMIUM AND HA D FORFEITED THE SHARE APPLICATION MONEY AND THEREFORE THE ASSESSING OFFI CER REQUIRED THE ASSESSEE TO EXPLAIN AND ON EXAMINATION OF THE EXPLA NATION THE ASSESSING OFFICER OBSERVED THAT THESE COMPANIES HAD NOT DECLA RED THE INVESTMENT IN THE ASSESSEE COMPANY AS SHARE APPLICATION MONEY BUT HAD CLASSIFIED IN THEIR BOOKS AS UNSECURED LOANS AND WHEN COMMISSION WAS IS SUED TO THE INCOME TAX OFFICER-6(1) KANPUR TO VERIFY THESE FACTS THE N THE INVESTORS EXPLAINED I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 3 THAT SINCE SHARE CERTIFICATES WERE NOT RECEIVED BY THEM THEREFORE THEY HAD CLASSIFIED THE AMOUNT UNDER THE HEAD UNSECURED LOAN S. IT WAS SUBMITTED THAT ENTIRE PROCESS OF GETTING SHARE APPLICATION MO NEY AND ITS FORFEITURE IS A SHAM TRANSACTION MEANT ONLY TO CONVERT ITS OWN MONE Y. IT WAS SUBMITTED THAT IT IS UNBELIEVABLE THAT IN THE CASE OF A PRIV ATE PLACEMENT (WHERE THE INVESTORS ARE KNOWN TO INVESTEE COMPANY) THE APPLIC ATION MONEY IS FORFEITED. IN VIEW OF THESE CIRCUMSTANCES IT WAS SUBMITTED THAT ASSESSING OFFICER HAD RIGHTLY MADE THE ADDITIONS AS THESE ARE SHAM TRANSACTIONS USING THE COLOURABLE DEVISE OF SHARE APPLICATION MONEY BE ING FORFEITED. IT WAS SUBMITTED THAT LEARNED CIT(A) HAS NOT RIGHTLY APPRE CIATED THE FACTS AND THEREFORE IT WAS PRAYED THAT THE APPEAL FILED BY T HE REVENUE MAY BE ALLOWED. 4. LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER H AND SUBMITTED THAT THE ASSESSEE HAD RECEIVED APPLICATION FOR ISSUE OF 80 000 CUMULATIVE REDEEMABLE 10% PREFERENCE SHARES HAVING FACE VALUE OF RS.100/- PER SHARE ALONG WITH PREMIUM OF RS.900/- ON EACH SHARE AND AP PLICATION AMOUNT OF RS.250/- WAS RECEIVED ON 29/04/2011 FROM THE SAID P ARTIES THROUGH BANKING CHANNELS AND IN SUPPORT OF THE TRANSACTIONS THE CO PY OF SHARE APPLICATION FORMS ALONG WITH THE COPY OF CONFIRMATION OF PAYMEN T OF SHARE APPLICATION MONEY COPY OF BANK ACCOUNT OF THE INVESTORS WERE F ILED. IT WAS SUBMITTED THAT AFTER RECEIVING THE PAYMENT THE ASSESSEE ISSU ED NOTICES TO AFORESAID PARTIES FOR ALLOTMENT MONEY ON 07/08/2011 WHICH WAS DULY ACKNOWLEDGED BY THE ABOVE INVESTORS AND SINCE THE ASSESSEE DID N OT RECEIVE THE ALLOTMENT MONEY IT AGAIN ISSUED NOTICE ON 08/09/2011 DULY ACK NOWLEDGED BY THE INVESTORS ASKING FOR MAKING THE PAYMENT UP TO 23.09 .2011 WITH THE CONDITION THAT IF NO PAYMENT WAS RECEIVED TILL 23.0 9.2011 THE SHARE APPLICATION MONEY ALONG WITH PREMIUM PAID BY THE IN VESTORS SHALL BE FORFEITED AND IN THIS REGARD OUR ATTENTION WAS INVI TED TO PAGES 38 - 41 OF THE I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 4 PAPER BOOK WHERE THE COPY OF SUCH LETTERS ADDRESSED TO INVESTORS WERE PLACED. IT WAS SUBMITTED THAT WHEN AGAIN NO PAYMEN T WAS RECEIVED THEN IN TERMS OF RESOLUTION PASSED BY THE BOARD HELD ON 24/ 09/2011 THE AFORESAID APPLICATION MONEY PAID BY THEM HAS BEEN FORFEITED I N TERMS OF ARTICLE-23 OF ARTICLES OF ASSOCIATION AND THE FORFEITED AMOUNT W AS TRANSFERRED TO RESERVE AND SURPLUS AND IN THIS RESPECT OUR ATTENTION WAS I NVITED TO PAGES 46 - 56 OF THE PAPER BOOK WHERE A COPY OF BALANCE SHEET AN D PROFIT & LOSS ACCOUNT OF THE COMPANY WAS PLACED. OUR ATTENTION WAS ALSO INVITED TO PAGES 57-68 OF THE PAPER BOOK WHERE A COPY OF MEMORANDUM AND AR TICLES OF ASSOCIATION WAS PLACED. IT WAS SUBMITTED THAT THE ASSESSING OF FICER DID NOT DOUBT THE CREDITWORTHINESS OF THE INVESTORS AND THE ASSESSING OFFICER MADE THE ADDITION ONLY ON THE BASIS THAT THE INVESTORS INITI ALLY HAD DECLARED THE INVESTMENT IN ASSESSEE COMPANY AS UNSECURED LOANS A ND THE REASON GIVEN BY THEM WAS SINCE THE ASSESSEE HAD NOT ALLOTTED SHA RES THEREFORE THE SAME WERE REFLECTED UNDER THE HEAD UNSECURED LOANS WAS N OT ACCEPTABLE TO THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE MERE FACT THAT SUCH AMOUNT WAS CLASSIFIED AS UNSECURED LOANS BY THE INVESTORS CANNOT CHANGE THE NATURE OF INVESTMENT RECEIVED BY THE ASSESSEE WHICH NECESS ARILY IS TOWARDS SHARE APPLICATION MONEY WHICH IS APPARENT FROM THE COPY O F SHARE APPLICATION FORMS SIGNED BY THE RESPECTIVE INVESTORS. IT WAS S UBMITTED THAT MANY TIMES COMPANIES ISSUE SHARES WITH THE CONDITION THAT THE PAYMENT IS TO BE MADE IN TWO OR MORE INSTALLMENTS AND THE USUAL COURSE IS TO COLLECT ENTIRE MONEY AS SHARE APPLICATION MONEY ALLOTMENT MONEY AND ONE OR MORE IN THE FORM OF CALL MONEY AND IF THE ALLOTMENT MONEY OR CALL MO NEY IS NOT RECEIVED THEN THE COMPANY IS EMPOWERED TO FORFEIT THE MONEY ALREA DY RECEIVED FROM APPLICANTS. IT WAS SUBMITTED THAT THE AMOUNT FORFEI TED IS A CAPITAL RECEIPT AND NOT TAXABLE IN THE HANDS OF THE ASSESSEE AND RE LIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS: I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 5 (I) ASIATIC OXYGEN LTD. VS. DCIT (1994] 49 ITD 3 55 [ITAT CALCUTTA) (II) DCIT VS. BRIJLAXMI LEASING & FINANCE LTD. (2 009) 118 ITD 546 (ITAT AHMEDABAD) (III) PRISM CEMENT LIMITED VS. JCIT (2006) 101 ITD 103 (ITAT MUMBAI) (IV) ADDL. CIT VS. OM OILS & OIL SEEDS EXCHANGE LTD . (1985) 152 ITR 552 (DEL.) (V) TRAVANCORE RUBBER & TEA CO. LTD. VS. CIT (200 0) 243 ITR 158 (SC) (VI) DEEPAK FERTILIZERS & PETROCHEMICALS CORPN. LT D. VS. DY. CIT [2009] 116 ITD 372 (ITAT MUMBAI) (VII) MULTAN ELECTRIC SUPPLY CO. LTD. IN REL3 ITR 457 (LAHORE) (VIII) JAIKISHAN DADLANI VS. ITO [2005] 4 SOT 138 ( ITAT MUMBAI) LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LEA RNED CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE IN HIS ORDER AND HA S HEAVILY PLACED RELIANCE ON THE FINDINGS OF LEARNED CIT(A). 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE APPLICATION MON EY RECEIVED BY ASSESSEE IS SUPPORTED BY SHARE APPLICATION FORMS PLACED AT PAGES 13 TO 24 OF THE PAPER BOOK. THE ABOVE SHARE APPLICATION FOR MS CLEARLY STATE THE TYPE OF SHARES THE AMOUNT PAID AS APPLICATION MONEY. T HE ABOVE SHARE APPLICATION FORM ALSO CONTAINS ACCEPTANCE BY THE IN VESTORS WHICH ALSO CONTAINED THAT APPLICATION OF SHARES WILL BE SUBJEC TED TO PROVISIONS OF COMPANIES ACT AS WELL AS THE PROVISIONS OF MEMORAND UM AND ARTICLES OF ASSOCIATION OF THE COMPANY. SUCH APPLICATION MONEY HAS BEEN PAID BY THE INVESTORS THROUGH BANKING CHANNELS. THE CONFIRMATI ONS BY THE INVESTOR COMPANY REGARDING HAVING PAID SHARE APPLICATION MON EY TO THE ASSESSEE ALONG WITH THE COPY OF THEIR BANK ACCOUNTS IS PLACE D AT PAGES 25 TO 33 OF THE PAPER BOOK. AFTER RECEIVING SHARE APPLICATION MONEY THE ASSESSEE VIDE I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 6 LETTER DATED 07/08/2011 ASKED THE INVESTOR COMPANI ES TO PAY THE BALANCE AMOUNT ON OR BEFORE 7 TH SEPTEMBER 2011 A COPY OF SUCH NOTICE IS PLACED A T PAGES 34 TO 37 OF THE PAPER BOOK. THEN AGAIN ON 8 TH SEPTEMBER 2011 THE ASSESSEE REMINDED THE INVESTOR COMPANIES TO PAY THE BALANCE AMOUNT ON OR BEFORE 23 RD SEPTEMBER 2011 A COPY OF SUCH REMINDER IS PLACED AT PAGES 38 TO 41 OF THE PAPER BOOK. EVEN THEN THE ASSESSEE DI D NOT RECEIVE THE BALANCE AMOUNT AGAINST ALLOTMENT OF SHARES AND THER EFORE VIDE LETTER DATED 26 TH SEPTEMBER 2011 THE ASSESSEE CONVEYED TO THE INVE STORS THAT IN TERMS OF ARTICLE 23 OF ARTICLES OF ASSOCIATION THE SHARE APPLICATION MONEY HAS BEEN FORFEITED AND A COPY OF SUCH COMMUNICATION IS PLACE D AT PAGES 42 TO 45 OF THE PAPER BOOK. A COPY OF ARTICLES OF ASSOCIATION IS PLACED AT PAGES 57 TO 68 OF THE PAPER BOOK. CHAPTER-6 OF ARTICLE OF ASSOCIA TION IS REGARDING FORFEITURE OF SHARES AND THE CLAUSE RUNS FROM CLAUSE 21 TO 31. FOR THE SAKE OF COMPLETENESS THE PROVISIONS CONTAINED UNDER THE HE AD FORFEITURE OF SHARES IS REPRODUCED BELOW: 21. IF A MEMBER FAILS TO PAY ANY CALL OR INSTALLM ENT OF A CALL ON THE DAY APPOINTED FOR PAYMENT THEREOF THE BOARD OF DIRECTORS MAY AT ANY TIME THEREAFTER DURING SUCH TI ME AS ANY PART OF THE CALL OF INSTALLMENT REMAINS UNPAID SERVE A NOTICE ON HIM REQUIRING PAYMENT OF SO MUCH OF THE C ALL OF INSTALLMENT AS IS UNPAID TOGETHER WITH ANY INTERES T WHICH MAY HAVE ACCRUED. 22. THE NOTICE AFORESAID SHALL: (A)NAME A FUTURE DATE (NOT BEING EARLIER THAN THE EXPIRY OF FOURTEEN DAYS FROM THE DATE OF SERVICE OF THE NO TICE) ON OR BEFORE WHICH THE PAYMENT REQUIRED BY THE NOTI CE IS TO BE MADE; AND (B)STATE THAT IN THE EVENT OF NON-PAYMENT ON OR DA TE SO NAMES THE SHARES IN RESPECT OF WHICH CALL WAS MADE WILL BE LIABLE TO EB FORFEITED AT THE DISCRETION OF THE BOARD. 23. IF THE REQUIREMENT OF ANY SUCH NOTICE AS AFORES AID ARE NOT COMPILED WITH ANY SHARE IN RESPECT OF THE NOTICE H AS I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 7 BEEN GIVEN MAY AT TIME THEREAFTER BEFORE THE PAYM ENT REQUIRED BY THE NOTICE HAS BEEN MADE BE FORFEITED BY A RESOLUTION OF THE BOARD TO THAT EFFECT. 24. A FORFEITED SHARE SHALL BE DEEMED TO BE THE PRO PERTY OF THE COMPANY AND MAY BE SOLD OF OTHERWISE DISPOSED OF ON SUCH TERMS AND IN SUCH MANNER AS THE BOARD OF DIRECTOR MAY OTHER MANNER. 25. AT ANY TIME BEFORE A SALE OF DISPOSAL AS AFORES AID THE BOARD OF DIRECTOR MAY THEIR DISCRETION NEITHER CAN CEL THE FORFEITURE ON SUCH TERMS AS THEY THINK FIT OF DEAL WITH IT IN ANY OTHER MANNER. 26. A PERSON WHOSE SHARES HAVE BEEN FORFEITED SHALL CEASE TO BE MEMBER IN RESPECT OF THE FORFEITED SHARES BUT S HALL NOTWITHSTANDING THE FORFEITURE REMAIN LIABLE TO PA Y THE COMPANY ALL MONEY WHICH AT THE DATE OF FORFEITURE WERE PRESENTLY PAYABLE BY HIM TO THE COMPANY IN RESPECT OF SHARES. 27. THE LIABILITY OF SUCH PERSONS SHALL CEASE IF AN D WHEN THE COMPANY SHALL HAVE RECEIVED IN FULL OF SUCH MONEYS IN RESPECT OF THE SHARES. 28. A DULY VERIFIED DECLARATION IN WRITING THAT THE DECLARING MANAGING DIRECTOR A DIRECTOR A MANAGER OR SECRETA RY OF THE COMPANY AND THAT SHARE IN THE COMPANY HAS BEEN DULY FORFEITED ON A DATE STATED IN THE DECLARATION SHALL BE CONCLUSIVE EVIDENCE OF THE FACT THEREIN STATED AS A GAINST ALL SUCH MONEY IN RESPECT OF THE SHARES. 29. THE CO0MPANY MAY RECEIVE THE CONSIDERATION IF A NY GIVEN FOR THE SHARE IN FAVOUR OF THE PERSON TO WHOM THE SHARE IS SOLD DISPOSED OF. THE TRANSFEREE SHALL TH EREUPON BE REGISTERED AS THE HOLDER OF THE SHARES. 30. THE TRANSFEREE SHALL NOT BE BOUND TO SEE THE AP PLICATION OF THE PURCHASE MONEY IF ANY NOR SHALL HIS TITLE T O BE SHARE BE AFFECTED BY ANY IRREGULARITY OF INVALIDITY IN THE PROCEEDINGS IN REFERENCE TO THE FORFEITURE SALE OF DISPOSAL OF THE SHARE. I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 8 31. THE PROVISION OF THESE REGULATIONS AS TO FORFEI TURE SHALL APPLY IN CASE OF NON-PAYMENT SUN WHICH BY THE TERM OF ISSUE OF A SHARE BECOME PAYABLE AT FIXED TIME WHE THER ON ACCOUNT OF NOMINAL VALUE OF THE SHARE OR BY OF PREMIUM AS IF THE SAME HAD BEEN PAYABLE BY CALL DU LY MADE AND NOTIFIED. 5.1 THE ABOVE PROVISIONS CONTAINED IN THE ARTICLE OF ASSOCIATION OF ASSESSEE COMPANY CLEARLY STATES THAT IN THE EVENT OF NON PAYMENT OF ALLOTMENT MONEY OR CALL MONEY THE AMOUNT ALREADY P AID WILL BE FORFEITED AND THEREFORE THE ASSESSEE COMPANY HAVING POWERS U NDER ARTICLE 23 HAD FORFEITED THE ABOVE SAID MONEY. NOW THE ABOVE SAID FORFEITED MONEY IS A CAPITAL RECEIPT WHICH IS NOT LIABLE TO TAX AS PER T HE PROVISIONS OF I.T. ACT AND THEREFORE WAS NOT RIGHTLY OFFERED TO TAX BY THE AS SESSEE COMPANY AND WAS RIGHTLY CREDITED TO RESERVE AND SURPLUS. THE ASSES SING OFFICER DURING THE ASSESSMENT PROCEEDINGS DID NOT DOUBT THE CREDITWOR THINESS OF INVESTOR AND HIS ONLY OBJECTION IN DISALLOWING THE SAME IS THAT THE INVESTORS IN THEIR BOOKS OF ACCOUNT HAD CLASSIFIED INVESTMENT IN THE ASSESSE E COMPANY AS UNSECURED LOANS. IN OUR OPINION SUCH CLASSIFICATION MADE BY THE INVESTOR COMPANY IN THEIR BOOKS OF ACCOUNT DOES NOT ALTER THE NATURE O F TRANSACTIONS WHICH CLEARLY IS SHARE APPLICATION MONEY AS IS EVIDENT FR OM THE COPY OF SHARE APPLICATION FORMS PLACED AT PAGES 13 TO 24 OF THE PAPER BOOK. THE EXPLANATION OF THE INVESTOR COMPANY THAT SINCE THEY HAD NOT YET RECEIVED THE ALLOTMENT OF SHARES AND THEREFORE HAD CLASSIFI ED THE SAME AS UNSECURED LOANS IS PLAUSIBLE. THE LEARNED CIT(A) HAS VERY EL ABORATELY DEALT THE ISSUE IN PARA 5 WHICH FOR THE SAKE OF COMPLETENESS IS REPRO DUCED BELOW: 5. I HAVE CONSIDERED THE WRITTEN SUBMISSION OF AP PELLANT PAPER BOOK AND CASE LAWS RELIED BY APPELLANT. I HAV E ALSO GONE THROUGH THE FINDINGS GIVEN BY AO IN ASSESSMENT ORDER AND I FIND THAT THE AO HAS MAINLY ASSERTED ON FOLLO WING POINTS I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 9 IN SUPPORT OF HIS CONTENTION FOR MAKING AFORESAID A DDITION OF RS.2 00 00 000/- :- (I) THE FORFEITURE OF SHARE MONEY ISSUED ON PR EMIUM WAS AN INCOME OF THE APPELLANT WHICH HAS NOT BEEN DISCL OSED IN ITS RETURN. (II) SINCE THE PARTIES WHO HAD PAID THE MONEY TO APPELLANT HAVE ACTUALLY SHOWN THE SAME AS UNSECURED LOANS IN THEIR RESPECTIVE FINANCIAL STATEMENTS INSTEAD OF CONFIRMI NG THE AMOUNT BEING GIVEN AS SHARE APPLICATION MONEY TOWAR DS CUMULATIVE REDEEMABLE 10% PREFERENCE SHARES ISSUED BY THE APPELLANT GENUINENESS OF TRANSACTION WAS QUESTIONA BLE. 5.1 ON CAREFUL CONSIDERATION OF THE WRITTEN SUBMISS IONS OF THE APPELLANT AND OBSERVATIONS OF THE AO PARTICULAR LY IN RESPECT OF HIS FIRST CONTENTION AS MENTIONED ABOVE I HOLD THAT FORFEITURE OF SHARE MONEY ISSUED ON PREMIUM WAS NOT AN INCOME OF THE APPELLANT BECAUSE: A. THERE WAS NO ADVERSE IMPLICATION IN THE I.T. ACT 1 961 FOR THE APPELLANT TO ISSUE ITS SHARES AT PREMIUM MORE THAN ITS BOOK VALUE DURING THE PRESENT YEAR AS THE CLAUSE (VIIB) OF SUB- SECTION (2) OF SECTION 56 OF THE I.T. ACT 1961 HAS BEEN INSERTED VIDE FINANCE ACT 2012 W.E.F. 01.04.2013 A ND NO OTHER PROVISION WAS IN EXISTENCE DURING THE PRESENT YEAR WHICH DEALS WITH SUCH KIND OF TRANSACTION; AND B. THE APPELLANT IS NOT ENGAGED IN THE BUSINESS OF RAI SING FINANCE THROUGH OFFER OF EQUITY. IN FACT THE EQUITY HAS B EEN RAISED TO STRENGTHEN ITS BUSINESS. C. THE SUM RECEIVED BY THE APPELLANT WAS NOT ON ACCOUN T OF ANY SECURITY DEPOSIT OR ADVANCE FOR PERFORMANCE OF ANY CONTRACT WHICH HAS ULTIMATELY BEEN FORFEITED. D. THE AMOUNT FORFEITED BY THE APPELLANT COULD NOT BE DISTRIBUTED AMONG SHAREHOLDERS IN TERMS OF SEC. 7 8 AND 205 OF THE COMPANIES ACT 1956. E. THE AMOUNT FORFEITED IS NOT COVERED BY THE DEFINITI ON OF INCOME AS DEFINED IN SECTION 2(24) OF THE INCOME TA X ACT 1961. BESIDES THIS THE APPELLANT HAS PLACED ITS RELIANCE ON VARIOUS AUTHORITIES WHEREIN IT HAS BEEN HELD THAT T HE SHARE APPLICATION MONEY WHICH HAD BEEN FORFEITED ION ACCO UNT OF I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 10 DEFAULT OF PAYMENT AS PER THE TERMS OF ISSUE OF SHA RES WAS CAPITAL RECEIPT THEREFORE NOT ASSESSABLE IN THE HA NDS OF THE APPELLANT. IT HAS BEEN HELD IN ASIATIC OXYGEN LTD. VS. DCIT (1 994) 49 ITD 355 (TTAT CALCUTTA) THAT AMOUNT FORFEITED F ROM SHAREHOLDERS FOR DEFAULT OF PAYMENT OF CALL MONEY W AS CAPITAL RECEIPT. IN THE CASE OF DCIT VS. BRIJLAXMI LEASING & FINANCE LTD. (2009) 118 ITD 546 (IT AT AHMEDABAD) IT WAS HELD T HAT THE SHARE APPLICATION WHICH HAD BEEN FORFEITED AS PER T HE TERMS OF THE PROSPECTUS COULD NOT BE TREATED AS A RECEIPT IN THE NORMAL COURSE OF THE BUSINESS OF THE ASSESSEE WHICH WAS E NGAGED IN FINANCING AND LEASING BUSINESS. IN PRISM CEMENT LIMITED VS. JCIT (2006) 101 ITD 103 (IT AT MUMBAI) IT HAS BEEN HELD THAT THE AMOUNT RE CEIVED BY THE ASSESSED IN LIEU OF ISSUANCE OF DEBENTURES WHIC H WAS FORFEITED LATER ON ACCOUNT OF NON-PAYMENT OF CALL M ONEY WOULD ASSUME THE CHARACTER OF A CAPITAL RECEIPT. S ECTION 41(1) IS NOT ATTRACTED AND SAME CANNOT BE TREATED A S DEEMED BUSINESS INCOME. IN THE CASE OF ADDL. CIT VS. OM OILS & OIL SEEDS EXCHANGE LTD. (1995) 152 ITR 552 (DEL) IT WAS HELD THAT THE PREMIUM ON ISSUE OF SHARES IS TO BE REGARDED AS MON EY PAID ON CAPITAL ACCOUNT AND NOT AS REVENUE RECEIPT. IT HAS BEEN HELD IN TRAVANCORE RUBBER & TEA CO. LT D. VS. CTT (2000) 243 ITR 158 (SC) THAT THE AMOUNT FOR FEITED BY THE ASSESSEE WAS IN TERMS OF THE AGREEMENT. SUCH A CLAUSE HAS BEEN CONSTRUED AS PROVIDING FOR COMPENSATION FO R BREACH OF CONTRACT UNDER S. 74 OF THE INDIAN CONTRACT ACT 1872. IF THE AGREED SUMS OF MONEY UNDER THE AGREEMENTS HAD BEEN RECEIVED BY THE ASSESSEE THEY WOULD HAVE BEEN CRED ITED IN ITS ACCOUNT AS A CAPITAL RECEIPT. THAT BEING SO THE FO RFEITED AMOUNTS MUST ALSO BE TREATED AS CAPITAL RECEIPT. IN THE CASE OF DEEPAK FERTILIZERS & PETROCHEMICALS CORPN. LTD. VS. DY. CIT [2009] 116 1TD 372 (ITAT M UMBAI) IT WAS HELD THAT THE FORFEITURE OF APPLICATION MONEY R ECEIVED I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 11 AGAINST PARTLY CONVERTIBLE DEBENTURES GAVE RISE TO CAPITAL RECEIPT NOT CHARGEABLE TO TAX. IT HAS BEEN HELD IN MULTAN ELECTRIC SUPPLY CO. LTD. IN RE13 ITR 457 (LAHORE) THAT ANY PROFIT WHICH ARISES ON THE FORFEITURE OF SHARES IS NEITHER A REVENUE RECEIPT NOR PROFIT ON THE WORKING OF THE COMPANY BUT IS SIMPLY THE CIRCU LATING CAPITAL OF THE COMPANY AND AS SUCH A CAPITAL ASSE T. IN THE CASE OF JAIKISHAN DADLANI VS. ITO [2005] 4 S OT 138 (ITAT MUMBAI) IT WAS HELD THAT THERE CANNOT BE ANY DISPUTE ABOUT THE POSITION THAT THE SHARE CAPITAL F ORFEITURE RECEIPTS ARE IN THE NATURE OF CAPITAL RECEIPTS. IN VIEW OF THE ABOVE I FIND MUCH FORCE IN ARGUMENT OF APPELLANT THAT THE FORFEITURE OF SHARE MONEY ISSUED ON PREMIUM ON ACCOUNT OF DEFAULT OF PAYMENT AS PER THE TERMS OF ISSUE OF SHARES WAS CAPITAL RECEIPT THEREFORE NOT LIABLE TO BE INCLUDED IN THE TOTAL INCOME OF APPELLANT. 5.2 WITH REGARD TO ANOTHER OBSERVATION OF THE AO I N RESPECT OF GENUINENESS OF TRANSACTION BY VIRTUE OF WHICH SE C. 68 OF THE ACT HAS BEEN INVOKED IN THE PRESENT CASE I HAVE CO NSIDERED THE MATTER. DURING THE APPELLATE PROCEEDINGS THE AP PELLANT HAS FURNISHED THE ACKNOWLEDGED COPIES OF SHARE APPL ICATION FORMS TERMS OF ISSUE OF SUCH SHARES INTIMATION FO R MAKING PAYMENT OF ALLOTMENT MONEY REMINDER FOR PAYMENT OF ALLOTMENT MONEY INFORMATION REGARDING FORFEITURE O F APPLICATION MONEY PAID BY ALL THE APPLICANTS ARTIC LES OF ASSOCIATIONS OF THE APPELLANT CONSISTING OF RELEVAN T CLAUSE UNDER WHICH IT IS EMPOWERED TO FORFEIT SUCH SHARE A PPLICATION MONEY ETC. WHICH WERE ALSO FURNISHED BEFORE THE LD. ASSESSING OFFICER ON 28.10.2014 DURING AS SESSMENT PROCEEDINGS AND ALSO MENTIONED AT FIRST PARAGRAPH O F PAGE NO. 2 OF THE ASSESSMENT ORDER ITSELF. ON ACCOUNT OF THE SE DOCUMENTS WHICH WERE DULY AVAILABLE ON RECORD IT C OULD NOT BE INFERRED THAT THE APPELLANT HAS NOT ADEQUATELY F OLLOWED THE PROCEDURE LAID DOWN IN THE COMPANIES ACT 1956 BEFO RE FORFEITING THE SHARE APPLICATION MONEY PAID BY FOUR CORPORATE APPLICANTS. I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 12 THE AO HAS GATHERED CERTAIN INFORMATION DIRECTLY FR OM SUCH CORPORATE APPLICANTS OR THEIR RESPECTIVE JURIS DICTIONAL ASSESSING OFFICERS TO VERILY THE TRANSACTIONS MADE BY THEM WITH THE APPELLANT AND IT HAS BEEN REVEALED FROM SU CH INFORMATION THAT THEY HAVE SHOWN THE MONEY PAID BY THEM TO APPELLANT AS UNSECURED LOANS IN THEIR RESPECTIVE FI NANCIAL STATEMENTS EXCEPT ONE - M/S CITYON SOLAR LIMITED NEW DELHI WHO HAD ADMITTED THAT THE MONEY INVESTED BY THEM WA S FORFEITED FOR NON-PAYMENT OF BALANCE AMOUNT ALTHOU GH SUCH APPLICANT HAS NOT FURNISHED ITS FINANCIAL STATEMENT S. ONE OF THE APPLICANT - M/S BANSAL SUPPLIERS PVT. LT D. KANPUR HAS HOWEVER INITIALLY INFORMED VIDE ITS LET TER DATED 15.12.2014 THAT THE MONEY GIVEN TO APPELLANT WAS ON ACCOUNT OF UNSECURED LOAN BUT MERELY AFTER FOUR DAYS THEY HAVE SUO MOTO FURNISHED ANOTHER LETTER THROUGH WHICH IT HAS BEEN INTIMATED THAT THE AMOUNT WAS PAID AS SHARE APPLICA TION MONEY TO APPELLANT. THUS THE LATER INFORMATION GIV EN BY THIS APPLICANT WAS IN CONTRADICTION TO THEIR PRELIMINARY INFORMATION. AFTERWARDS SUCH AAPPLICANT HAS STATED ON OATH BEFO RE ITS ASSESSING OFFICER THAT BECAUSE SHARE CERTIFICATES W ERE NOT RECEIVED BY THEM THEY HAVE SHOWN THE AMOUNT PAID TO APPELLANT AS UNSECURED LOAN IN THEIR BOOKS OF ACCOU NT. ANOTHER APPLICANT - M/S ZERO TRADERS & SERVICES LTD . KANPUR HAS ALSO STALED BEFORE ITS ASSESSING OFFICER THAT NO INTIMATION OF FORFEITURE OF SHARE APPLICATION MONEY WAS RECEIVED BY THEM NEITHER THE SHARE CERTIFICATES WER E RECEIVED BY THEM SO THEY HAVE SHOWN THE MONEY UNDER UNSECURE D LOANS IN THEIR BALANCE SHEET. FOURTH APPLICANT - M/S CITYON SYSTEMS (INDIA) LIMIT ED HAS FURNISHED COPY OF REPORT WHEREIN MONEY GIVEN TO THE APPELLANT WAS RECORDED UNDER THE HEAD UNSECURED LOA NS. ON THE OF INFORMATION GIVEN BY M/S BANSAL SUPPLIERS PVT. LTD. AND ZERO TRADERS & SERVICES LTD. APPAREN TLY THERE WAS RATIONAL CONNECTION BETWEEN THE TRANSACTIONS MA DE BY THEM AND ACCOUNTING ENTRIES REFLECTED IN THE BOOKS OF ACCOUNT OF THE APPELLANT AS THE EXPLANATION FURNISHED BY TH EM FOR RECORDING THE TRANSACTIONS AS UNSECURED LOAN IS ITS ELF SUFFICIENT TO SUBSTANTIATE THE NATURE OF ORIGIN OF SUCH TRANSA CTIONS WHICH I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 13 IS ENTIRELY SAME AS PRESENTED BY APPELLANT BEFORE T HE AO. THUS THERE WAS NO PERVERSITY AT THE END OF THE APP ELLANT IN THIS REGARD. IT IS ALSO REASONABLY UNDERSTANDABLE THAT IN CASE APPLICANTS HAVE NOT PAID THE ALLOTMENT MONEY WITHIN STIPULATED PERIOD AS LAID DOWN IN THE TERMS OF ISSU E OF SUCH SHARES NO SHARE CERTIFICATES OUGHT TO BE DELIVERED TO THEM AS A RESULT OF WHICH THERE WAS NO INFIRMITY AT THE END OF THE APPELLANT. BESIDES THIS AFTER PURSUING THE RELEVANT FACTS OF THE PRESENT CASE ALONG WITH THE CONTENTS OF ASSESSMENT ORDER PASSED BY THE AO IT IS VERY MUCH EVIDENT THAT THE AO HAS ALTHOUGH GATHERED CERTAIN INFORMATION DIRECTLY FRO M SUCH CORPORATE APPLICANTS OR THEIR RESPECTIVE JURISDICTI ONAL ASSESSING OFFICER TO VERIFY THE TRANSACTIONS MADE BY THEM WIT H THE APPELLANT AND THE INFORMATION LEAD TO SOME CONTROVE RSIES ALSO BUT NEITHER SUCH INFORMATION WAS FURNISHED TO THE A PPELLANT NOR OFFERED FOR CROSS-EXAMINATION. THE APPELLANT HA S ALSO SUBMITTED THAT AN EXPLANATION GIVEN HAS TO BE CONSI DERED OBJECTIVELY BEFORE THE ASSESSING OFFICER TAKES A DE CISION TO ACCEPT IT OR REJECT IT I.E. DEPARTMENT CANNOT CONV ERT A GOOD PROOF INTO NO PROOF ON MERE IPSE DIXIT. BESIDES TH IS IT HAS ALSO BEEN SUBMITTED BY THE APPELLANT THAT NEITHER I T IS A PREROGATIVE OF THE APPELLANT NOR IT WAS RESPONSIBLE AT ALL TO TAKE CARE OF THE AUTHENTICITY OR LEGITIMACY OF AC COUNTING ENTRIES MADE IN THE BOOKS OF ACCOUNT OF SUCH APPLI CANTS AND THE MANNER IN WHICH THEY HAVE SHOWN THE TRANSACTION S IN THEIR RESPECTIVE FINANCIAL STATEMENTS PARTICULARLY WHEN N O OPPORTUNITY OF CROSS-EXAMINATION OF THEM WAS GIVEN TO THE APPELLANT. CONSIDERING THIS PECULIAR FACT I HOLD THAT NO ADDI TION CAN BE MADE ON THIS ACCOUNT AND NO SUCH INFERENCE C AN BE DRAWN AGAINST THE APPELLANT WHICH ENTAIL THAT THE T RANSACTIONS WERE SHAM OR COLOURABLE DEVISE TO INTRODUCE MONEY I N ITS BUSINESS UNDER THE GARB OF SHARE APPLICATION MONEY BEING FORFEITED UNILATERALLY AS IN THE MATTERS RELATING T O SEC. 68 THE RULE OF AUDI ALTERANT PARTEM HAS TO BE OBSERVED AND THE VERACITY OF GENUINENESS MUST BE TESTED AT THE TOUC HSTONE OF EVIDENCE AND NOT OTHERWISE. RELIANCE IS PLACED ON THE I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 14 FOLLOWING AUTHORITIES WHEREIN IT HAS BEEN HELD THAT THE APPELLANT MUST BE PROVIDED A FAIR OPPORTUNITY OF BE ING HEARD DURING THE ASSESSMENT PROCEEDINGS AS IT IS A BASIC RULE OF NATURAL JUSTICE. A) IN THE CASE OF CIT VS. JINDAL VEGETABLES PRODUCTS L TD. (2009) 315 ITR 265 (DEL.) IT WAS HELD THAT NO RELIA NCE CAN BE PLACED ON THE STATEMENTS AS THEY WERE INHERENTLY CONTRADICTORY AND UNRELIABLE AND NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE BY THE AO TO CROSS-EXAMINE THE PERSON. B) IT HAS BEEN HELD IN HEIRS AND LRS OF LATE LAXMANBHA I S. PATEL VS. COMMISSIONER OF INCOME TAX (2010) 327 ITR 290 (GUJ.) THAT THE LEGAL EFFECT OF THE STATEMENT RECORDED BEHIND THE BACK OF THE ASSESSEE AND WITHOU T FURNISHING THE COPY THEREOF TO THE ASSESSEE OR WITH OUT GIVING AN OPPORTUNITY OF CROSS-EXAMINATION IS THAT IF THE ADDITION IS MADE THE SAME IS REQUIRED TO BE DELETE D ON THE GROUND OF VIOLATION OF THE PRINCIPLES OF NATURA L JUSTICE. C) IT WAS HELD IN THE CASE OF CIT VS. SMC SHARE BROKER S LTD. (2007) 288 ITR 345 (DEL) THAT THOUGH STATEMENT OF THIRD PARTY HAD EVIDENTIARY VALUE WEIGHT COULD NOT BE GIVEN TO IT IN PROCEEDINGS AGAINST THE ASSESSEE WIT HOUT TESTING IT UNDER CROSS EXAMINATION. D) IN THE CASE OF CIT V. EASTERN COMMERCIAL ENTERPRISE S (1994) 210 ITR 103 (CAL.) IT WAS HELD THAT THE CROS S EXAMINATION IS SINE ANA NON OF THE DUE PROCESS OF TAKING EVIDENCE AND NO ADVERSE INFERENCE CAN BE DRA WN AGAINST A PARTY UNLESS THAT PARTY IS PUT ON NOTICE OF THE CASE MADE OUT AGAINST HIM. E) IT WAS HELD IN THE CASE OF KISHINCHAND CHETTARA M VS. CIT 125 ITR 713 (SC) THAT THE AMOUNT CANNOT BE ASSESSED AS UNDISCLOSED INCOME OF ASSESS IN THE ABSENCE OF POSITIVE MATERIAL BROUGHT BY REVENUE TO PROVE THAT THE AMOUNT IN FACT BELONGED TO ASSESSEE AS THE BURDEN LAY ON THE REVENUE. F) IN CIT VS. GEETANJALI EDUCATION SOCIETY (2008) 174 TAXMAN 440 (RAJ.) IT HAS BEEN HELD THAT ASSESSEE REGISTERED UNDER S. 12A COULD NOT BE DENIED EXEMPT ION UNDER] S. 11 ON THE GROUND THAT DONATIONS WERE BOGU S I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 15 WITHOUT EXAMINING THE DONORS AND SUBJECTING THOSE DONORS TO CROSS-EXAMINATION WHO HAD BEEN EXAMINED. G) IT WAS HELD IN THE CASE OF M/S SHREE BARKHA SYN THETICS LTD. VS. ACIT (2006) 55 TAXMAN 289 (RAJ) THAT 'WHER E ASSESSEE COMPANY HAD RECEIVED SHARE APPLICATION MONEY FROM A COMPANY FROM AND INDIVIDUAL INVESTOR THROUGH BANKING CHANNEL AND HAD FURNISHED CONFIRMATION OF INVESTMENT IN SHARE CAPITAL BY SAID COMPANY AND HAD ALSO PROVED EXISTENCE OF SAID INDIVIDUAL INVESTOR IT COULD BE SAID THAT THE ASSE SSEE HAD PROVED GENUINENESS OF SAID. AO CANNOT MAKE ANY ADDITIONS IT COULD BE SAID APPLICATION MONEY BY TR EATING THE SAME AS UNEXPLAINED CASH CREDIT U/S 68. H) CIT VS. KANDHENU STEELS & ALLOY LTD. (2012) 248 ITR 33 (DELHI) IN ADDITION TO ABOVE THE APPELLANT HAS ALSO SUBMI TTED THAT APPLICANT COMPANIES WERE NOT FICTITIOUS AND TH EIR EXISTENCE OR IDENTITY WAS NEVER DISPUTED. MOREOVER SUCH COMPANIES WERE ALSO HAVING BANK ACCOUNTS AND PAYMEN TS WERE RECEIVED BY THE APPELLANT THROUGH BANKING CHAN NEL. THEREFORE THE INFERENCE THAT THE GENUINENESS OF TR ANSACTION WAS QUESTIONABLE IS NOT ACCEPTABLE IN VIEW OF DECIS ION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD. 216 CTR 195 (SC) WHERE IT WAS HELD THAT SH ARE MONEY CANNOT BE REGARDED AS UNDISCLOSED INCOME U/S 68 IF THE NAMES OF THE PAYERS ARE GIVEN TO THE ASSESSING OFFICER. BESIDES THIS THE PROVISO TO SECTION 68 OF THE I.T. ACT 1961 REGARDING ANY SUM CREDITED ON ACCOUNT OF SHARE APPL ICATION MONEY SHARE CAPITAL SHARE PREMIUM ETC. WAS ACTUA LLY INSERTED VIDE FINANCE ACT 2012 AND EFFECTIVE FROM 0 1/04/2013 OR ASSESSMENT YEAR 2013-14. THUS THE ADDITION SO M ADE BY INVOKING THE PROVISIONS OF SEC. 68 IS WHOLLY UNWARR ANTED IN THE PRESENT CASE AND NOT SUSTAINABLE AT ALL. ON CAREFUL CONSIDERATION OF THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT FINDINGS GIVEN BY THE AO IN THE ASSESSMENT ORDER AND FACTS MENTIONED ABOVE I HOLD THAT THE AO WAS NOT JUSTIFIED IN INVOKING SEC. 68 IN THE PRE SENT CIRCUMSTANCES AND THE ADDITION OF RS.2 00 00 000/- IS LIABLE TO BE DELETED. THE AO IS DIRECTED TO DELETE THE ADDITI ON OF I.T.A. NO.116/LKW/2017 ASSESSMENT YEAR:2012-13 16 RS.2 00 00 000/-. THUS GROUND NO. 1 2 3 4 AND 5 ARE ALLOWED IN FAVOUR OF APPELLANT. 5.2 IN THE ABOVE FINDINGS OF LEARNED CIT(A) WE DO NOT FIND ANY INFIRMITY AND THEREFORE THE APPEAL OF THE REVENUE IS DISMISS ED. 6. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 31/08/2021) SD/. SD/. ( A. D. JAIN ) ( T. S. KAPOOR ) VICE PRESIDENT ACCOUNTANT MEMBER DATED:31/08/2021 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R. I.T.A.T. LUCKNOW BY O RDER ASSISTANT REGISTRAR